“Particularly in lower income households there is not a lot of discretionary income, and any spikes up in food and fuel prices means that you have less money to spend on other discretionary goods,” Eaqub said.

As a result, retailers could expect a “challenging start to 2013”.

But longer term, higher commodity prices were good for New Zealand's economy, leading to farmers earning and investing more, while a higher exchange rate reduced the cost of imports including consumer products like televisions and cars.

NZIER forecasts the economy to grow at 1.7 per cent this year, rising to 2.7 per cent next year as the Christchurch rebuild gathers pace.

The rebuild would take longer than expected and the economic benefit each year would be smaller, Eaqub said.

Exports would be weak this year, particularly for non-food products, bouncing back slightly next year.

The recovery would remain tentative compared with a typical post-recession growth of 3 to 4 per cent.

But conditions in New Zealand were “generally OK”. The economy was no longer shrinking and the country was spending more responsibly and conservatively.

The slowing global economy was the biggest risk to the New Zealand economy.

“The European debt crisis is spilling over to our key trading partners in Asia and Australia, which will dent our exports,” Eaqub said.